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Intertemporal Consumption with Risk: A Revealed Preference Analysis

Author

Listed:
  • Joshua Lanier

    (Southwestern University of Finance and Economics)

  • Bin Miao

    (Renmin University of China)

  • John K.-H. Quah

    (Johns Hopkins University and the National University of Singapore)

  • Songfa Zhong

    (National University of Singapore)

Abstract

We run an experiment to elicit preferences over state-contingent timed payouts. We analyze the data using a new revealed preference method (building on Nishimura et al., 2017) that can test for consistency with utility functions that increase with a given preorder. We find that correlation neutrality, a property implied by discounted expected utility, is widely violated and there is, instead, strong evidence of intertemporal correlation averse behavior. Our results suggest that utility is not additive across both states and time and that credible models of choice need to allow people to prefer negative correlation in timed payouts.

Suggested Citation

  • Joshua Lanier & Bin Miao & John K.-H. Quah & Songfa Zhong, 2024. "Intertemporal Consumption with Risk: A Revealed Preference Analysis," The Review of Economics and Statistics, MIT Press, vol. 106(5), pages 1319-1333, September.
    • Handle: RePEc:tpr:restat:v:106:y:2024:i:5:p:1319-1333
    DOI: 10.1162/rest_a_01220
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    Cited by:

    1. Erin Cottle Hunt & Frank N. Caliendo, 2024. "Dynamic Optimization with Timing Risk," Mathematics, MDPI, vol. 12(17), pages 1-18, August.
    2. Lasse Mononen, 2023. "Computing and comparing measures of rationality," ECON - Working Papers 437, Department of Economics - University of Zurich.

    More about this item

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General

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